No, We Won’t Lose Airlines
In an Aug. 5 media briefing, President Donald Trump signaled his support for further government aid to the airline industry. “I think it’s very important that we keep the airlines going,” he said, adding, “We don’t want to lose our airlines.” Unions and airline executives have been urging Congress to earmark up to $25 billion for further payroll support, warning that without that aid, tens of thousands of airline employees will lose their jobs on Oct. 1, when the original CARES Act payroll support expires.
Airlines and their employees are on tenterhooks as Congress and the White House stumble and bumble their way to another round of stimulus. And when that may happen is anyone’s guess. House Speaker Nancy Pelosi (D-Calif.) says a vote could come next week, but who knows if that will hold? The unions and some airline CEOs have called for payroll support through March 2021.
But is more stimulus necessary? Earlier this week, we noted that Brett Snyder, author of the influential Cranky Flier blog, argued against further stimulus, despite the enormous pain layoffs will inflict on employees. He argues for a leaner and meaner airline industry, one better matched to the anemic demand expected this fall and into next year.
The Economist agreed, arguing that more government funds will merely prop up failing airlines and tilt the market away from more nimble and efficient competitors. Instead, governments should work to boost access at congested airports for new entrants and let more bloated airlines restructure to match the new reality.
In many parts of the world, airlines will fail. Virgin Australia Virgin Atlantic, and Thai are among the large airlines that are in some form of administration. And more will fail. That much is certain, especially as forecasts for the industry’s recovery keep getting pushed back.
In the U.S., though, absent government stimulus, there will be layoffs. But bankruptcies, as Trump seemed to suggest? That’s unlikely, at least in the near and medium term. Carriers are feeling financial pain and are burning incredible amounts of cash, but they still have access to capital markets and are likely to survive. Unlike the post-9/11 crisis in the industry, no one is seriously discussing bankruptcy as an option — for mainline carriers, at least.
The result could be a more nimble industry. The CARES Act mandated that airlines operate to all their pre-pandemic markets. What could emerge, absent CARES II, is a smaller airline industry operating fewer flights to fewer destinations. In the future, possibly years off, when demand begins to return, there could be a painful period when demand outstrips supply — or passengers are frustrated in easily getting to all the places they used to. But that’s far off, if present forecasts hold.
As Snyder and The Economist argued, it’s better to let the industry sort itself out and match to present demand than to prop up “zombie” airlines. Some may fail, but no, Mr. President, those failures are unlikely to be in the U.S.Subscribe Now to Airline Weekly